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Evaluating Portfolio Performance with Stochastic Discount Factors

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  • Dahlquist, Magnus
  • Soderlind, Paul

Abstract

The authors first discuss performance evaluation using stochastic discount factors and relate it to traditional mean-variance analysis. They then use Monte Carlo experiments to examine the properties of various general method of moment (GMM) estimators. The test statistics are fairly well behaved although serious size distortions are found in some cases. The simulations also show that a significant excess return, or a long sample, is needed to reject neutral performance. Finally, the authors offer an evaluation of Swedish-based mutual funds. The conditional evaluation indicates that funds have had nonneutral performance as revealed by the predictability of the unconditional performance measure. Copyright 1999 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 72 (1999)
Issue (Month): 3 (July)
Pages: 347-83

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Handle: RePEc:ucp:jnlbus:v:72:y:1999:i:3:p:347-83

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Abel, Ernest & Fletcher, Jonathan, 2004. "An empirical examination of UK emerging market unit trust performance," Emerging Markets Review, Elsevier, Elsevier, vol. 5(4), pages 389-408, December.
  2. Dahlquist, Magnus & Engström, Stefan & Söderlind, Paul, 1999. "Performance and Characteristics of Swedish Mutual Funds 1993-97," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2166, C.E.P.R. Discussion Papers.
  3. Gutierrez, Roberto Jr. & Prinsky, Christo A., 2007. "Momentum, reversal, and the trading behaviors of institutions," Journal of Financial Markets, Elsevier, Elsevier, vol. 10(1), pages 48-75, February.
  4. Antonio Diez de los Rios & René Garcia, 2011. "The option CAPM and the performance of hedge funds," Review of Derivatives Research, Springer, Springer, vol. 14(2), pages 137-167, July.
  5. Engstrom, Stefan, 2003. "Costly information, diversification and international mutual fund performance," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 11(4), pages 463-482, September.
  6. Fletcher, Jonathan & Kihanda, Joseph, 2005. "An examination of alternative CAPM-based models in UK stock returns," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(12), pages 2995-3014, December.
  7. Bekaert, Geert & Liu, Jun, 2001. "Conditioning Information and Variance on Pricing Kernals," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt9m7392rq, Anderson Graduate School of Management, UCLA.
  8. Ayadi, Mohamed A. & Kryzanowski, Lawrence, 2005. "Portfolio performance measurement using APM-free kernel models," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(3), pages 623-659, March.
  9. Nijman, T.E. & Roon, F.A. de, 2001. "Testing for mean-variance spanning: A survey," Open Access publications from Tilburg University urn:nbn:nl:ui:12-87531, Tilburg University.
  10. Potì, Valerio & Wang, DengLi, 2010. "The coskewness puzzle," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(8), pages 1827-1838, August.
  11. Min, Byoung-Kyu & Kim, Tong Suk, 2012. "Are good-news firms riskier than bad-news firms?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(5), pages 1528-1535.
  12. Heber Farnsworth & Wayne E. Ferson & David Jackson & Steven Todd, 2002. "Performance Evaluation with Stochastic Discount Factors," NBER Working Papers 8791, National Bureau of Economic Research, Inc.

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